What makes a great boss?
Meet three entrepreneurs who go the extra mile to attract and motivate first-rate employees.
By Elaine Pofeldt, Fortune

(Fortune Magazine) -- No one doubts that workers are motivated by financial rewards--and that companies are willing to dole them out. The National Center for Employee Ownership reckons that more than 9,000 companies were offering programs like Employee Stock Ownership Plans as of July, a 20%-plus jump from 1999. But as another recent survey shows, business owners are looking for more creative ways to find good workers - and keep them.

For the fourth year now, Fortune Small Business has published a Best Bosses report by Winning Workplaces, an Evanston, Ill., nonprofit firm that helps small-business managers improve their communications skills to make workers happier and more productive. And this year's winners - 18 Best Bosses in all - show there's more to creating a good workplace than offering a piece of the action. (The complete results of the competition can be seen on winningworkplaces.org.) For example: David Williams, CEO of Merkle, a database-marketing agency in Lanham, Md., pays for his 851 employees to take classes during business hours on subjects ranging from computer programming to public speaking. Richard Caturano, president of Boston accounting firm Vitale Caturano, offers free gourmet dinners and Saturday lunches during the busy season, and a concierge service for errands such as picking up dry cleaning. What follows are profiles of three more leaders of companies that attract and retain employees in different ways.

Mellody Hobson

Ariel Capital Management

Ariel prides itself on its slow and steady approach to investing. The Chicago-based investment firm, which runs three mutual funds and has $17 billion in assets under management, uses the same strategy to advance its social mission: educating African-American kids about investing. Its 97 employees reach out to Chicago children through Ariel Community Academy, a public school that the firm helped the city found and that it supports with help from two financial firms: John Nuveen and Lehman Brothers.

Each first-grade class receives $20,000, which Ariel invests equally in its Ariel fund and the Nuveen Rittenhouse Growth fund. President Mellody Hobson, 37, gives regular lectures at the school to both students and their parents on topics such as saving and investing, and she came up with the child-friendly statements that each student receives on the $20,000 investment. Says Hobson: "Ariel Community Academy allows us to attract like-minded employees who have a sense of community."

Graham Weston

Rackspace

What's the best way to keep a young company in the fast lane? Graham Weston, 42, co-founder and CEO of Rackspace Managed Hosting, based in San Antonio, hands top performers the keys to one of his cars, a BMW M3 convertible, for a week. Finding creative ways to recognize the stars on his 1,000-employee staff has helped Weston grow annual sales to $139 million at seven-year-old Rackspace, which hosts web applications for other firms.

"I think it's one of the biggest bargains in business," Weston says. "If you gave somebody a $200 bonus, it wouldn't mean very much. When someone gets to drive my car for a week, they never forget it." For extra recognition, he offers workers the use of a guest house he owns on the Comal River in New Braunfels, Texas, where the water is 72 degrees year round.

"You know if you work hard, Graham sees it and will take care of you," says David Bryce, 34, vice president of customer care at Rackspace. "You don't have to worry about fighting for yourself to get what's 'due' to you. It's not a lot of fun working for a boss who doesn't give you a raise unless you ask for it." Weston also offers flexible arrangements for employees working through personal problems. When Bryce, who joined Rackspace in 1999, was struggling to cope with a divorce, Weston offered him several months of paid leave, which he gratefully accepted. "I would do anything for Graham," he says.

Paal Gisholt

Smartpak

While many CEOs rely on monster.com, Paal Gisholt prefers to find employees for SmartPak, a maker of equestrian products, at horse shows and university equine-studies programs. Since Gisholt, 41, founded the company, based in Plymouth, Mass., seven years ago with his wife, he estimates that he and his HR team have attended 85 horse shows and built relationships with 15 equine-studies programs.

Ashley Wener, 22, who received a degree in animal sciences from the University of Vermont, sent her résumé to SmartPak after a professor recommended the company to her. She joined SmartPak in June and now works as a product specialist in the sales department. Her 3.67 GPA helps, she says, but she has expanded her knowledge of horses since Gisholt hired her. "I'm constantly learning," she says.

Sales at SmartPak grew from $15 million in 2004 to $23 million in 2005, and the company recently expanded into selling prepacked daily helpings of all-natural dog food. Don't be surprised if Gisholt starts scouting for talent at the Westminster Kennel Club Dog Show.  Top of page